Implemented in 1996, the Employment Insurance Act (EIA) enacted a number of fundamental changes to Canada's unemployment insurance system. One of these reforms was supposed to establish a new financing regime that would maintain relatively stable premium rates over the course of a business cycle. The 1996 premium rate-setting process was suspended in 2001, when an amendment to the EIA established that the Employment Insurance (EI) premium rate for 2002 and 2003 would be set by the Governor in Council on the recommendation of the ministers of Human Resources Development and Finance. During this period, a new premium rate-setting process was to be developed and implemented in order to address the concerns expressed by many about the growing so-called "reserve" in the Employment Insurance Account.(< http://www.parl.gc.ca/information/library/PRBpubs/prb0341-e.htm#fn1 > 1)

As the government was not prepared to implement a new premium rate-setting process by the end of 2003, it announced in the February 2003 budget that the premium rate for 2004 would be set at $1.98 per $100 of insurable earnings. The government also announced that it would accept submissions from the public on a new premium rate-setting process until 30 June 2003. In the event that the new rate-setting legislation was not in place to set the rate for 2005, the government extended by one year its rate-setting authority in the March 2004 budget.

On 23 February 2005, the government introduced legislation to establish a new framework for setting the EI premium rate. Under this rate-setting initiative, the Canada Employment Insurance Commission sets the EI premium rate on a one-year, forward-looking basis so as to ensure that premium revenues in the coming year are sufficient to cover the costs of EI. However, this rate-setting process continues to allow excess EI premium revenues to be used as general revenue. As a consequence, Budget 2008 proposed several additional modifications to the EI rate-setting process. These modifications were expected to take effect in 2009, but will now be delayed until 2010 as a consequence of provisions in Budget 2009.

Contents

* Introduction * A Review of Recent Rate-Setting Practices * The Consultations * Principle 1: Premium rates should be set transparently * Principle 2: Premium rates should be set on the basis of expert advice * Principle 3: Expected premium revenues should correspond to program cost * Principle 4: Premium rate-setting should mitigate the impact on the business cycle * Principle 5: Premium rates should be relatively stable over time * A New Framework for Setting the EI Premium Rate * A. Bill C-43 * B. Bill C-50 * Conclusion * Endnotes

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